Section 32 HOEPA

Use the Section 32 HOEPA form to determine if a loan is a "High-Cost Mortgage" as defined by the Consumer Financial Protection Bureau (CFPB).

Definition of a High-Cost Mortgage

The CFPB issued High-Cost Mortgage Amendments to the Truth in Lending Act (Regulation Z) effective January 10, 2014. The final rule amends section 1026.32 of Regulation Z by expanding the types of mortgage loans subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for HOEPA coverage, and imposing a prepayment penalty threshold test on mortgages that are covered by HOEPA.

Under HOEPA, a “High-Cost Mortgage” is a consumer credit transaction secured by a consumer's 1-4 unit principal dwelling, including purchase and non-purchase money closed-end credit transactions and HELOCs, in which:

  • The annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by more than:

  • 6.5 percentage points for first liens;

  • 8.5 percentage points for first liens less than $50,000 secured by a dwelling that is personal property (e.g., manufactured home); or

  • 8.5 percentage points for junior liens;

  • The total points and fees exceed:

  • 5% of the total loan amount if the loan amount is $21,032 or more; or

  • The lesser of 8% of the total loan amount or $1,052 for a loan amount less than $21,032 (the $1,052 and $21,032 figures are adjusted annually);

  • A prepayment penalty may be charged more than 36 months after consummation or account opening, or may exceed, in total, more than 2 percent of the amount prepaid.

Transactions eligible for HOEPA coverage include purchase-money loans and home-equity lines of credit (HELOCs). Transactions excluded from coverage include: reverse mortgage loans, loans to finance the initial construction of a dwelling, loans originated by a Housing Finance Agency (i.e., HFA is the creditor), and loans under USDA's Section 502 Direct Loan Program.

For transactions not exempt from HOEPA coverage, Encompass applies the HOEPA coverage tests to determine if the transaction is a Federal High-Cost Mortgage. There are three separate HOEPA coverage tests based on:

  • The transaction’s annual percentage rate (APR)

  • The amount of points and fees paid in connection with the transaction

  • The prepayment penalties you may charge under the loan or credit agreement

Section 32 Qualification Tests

If the loan exceeds the threshold for any of the three tests, it qualifies as a high cost mortgage under Section 32.

ClosedAPOR Test

ClosedPoints and Fees Test

ClosedPrepayment Penalty Threshold Test

ClosedSection 32 Qualification Section